Pillar Data launches Axiom with promise to rattle industry

Nearly four years after it was founded in 2001, San Jose-based Pillar Data Systems has finally launched the product that it hopes will chill rivals such as Network Appliance Inc.

CEO Mike Workman, emerging from stealth mode this week, promises that his company -- which is funded entirely by Oracle Corp. CEO Larry Ellison's Tako Ventures LLC and boasts 325 employees -- will reduce profit margins in the data storage industry as a whole as it shakes up the industry.

Pillar claims that its product, the Axiom Storage system, has the ability to store 300 terabytes of data -- or 30 times all the text in the Library of Congress -- at less than half the price of its rivals, and is less complicated to use.

But Arun Taneja, founder of Taneja Group, a technology analyst for the storage industry, believes that the jury is still out on Pillar -- and will be for the next year or so.

"I will discount the fact that they have tons of money," Mr. Taneja says. "The only one that counts is the end user. It will take a year for us to really know at the industry level where things are at."

With no revenue for the past several years, Mr. Workman admits Pillar has existed simply because of Tako's faith that the company will become a major player in data storage. The firm has no other investors.

"They saw a growing market that can be disrupted and built a management team with the experience to do it," Mr. Workman said of Tako, which controls Pillar's board. Pillar's chairman is Steve Fink, CEO of Lawrence Investments LLC, the parent company of Tako.

During Pillar's first few years of expensive R&D, data storage companies have kept margins up by locking customers into data storage systems that were costly to upgrade or replace, then charging high service fees, Mr. Workman says.

In fact, Mr. Workman says part of Pillar's challenge has been un-training its employees -- many of whom worked for some of the company's competitors in the data storage space -- from buying into this paradigm. "We have to un-train people in their lock-in mentality," he says.

Pillar sells one software license for a storage system that can scale as a company's needs change, Mr. Workman says. The system also enables clients to fix systems themselves by downloading free software from Pillar -- something Mr. Workman says competitors don't offer.

Pillar allows companies to use a single data storage system to manage different types of data that traditionally had to be stored by different systems, based on how much the information needed to be accessed by the company. For instance, a corporation would use one storage system for data it accessed on a regular basis, such as current customers, while using another system for data it rarely need to access, such as archived e-mails.

Mr. Workman says that it became apparent half a decade ago that innovations in disk drive technology meant that these different levels -- or "tiers" -- of data storage could all be run by a single software and hardware system. In the past, each tier needed its own hardware and software system.

That spelled huge profits for traditional players in the market, who could charge for software for every tier.

But that dynamic is about to change, Mr. Workman believes.

"One person's wide margins is another person's business opportunity," Mr. Workman says. He believes that Pillar will attain profitability in a year, and eventually becoming a Network Appliance-sized player.

Pillar has been hiring employees with "deep roots in storage," says Mr. Workman, the former vice-president of world development for IBM's storage technology division. "The average age is 40 in this company. Experience is worth something. The scars on you are the things that prevent you from being cut again."

Mr. Taneja, the analyst, does see that those scars do deliver some advantage .

"Because Pillar started three years ago, there is an advantage of starting late," he says. "The advantage is you learn from the mistakes of others."

Pillar has also developed a method of converging two types of applications used in data storage -- SAN and NAS -- that appears to be superior to what competitors like Network Appliance have to offer, Mr. Taneja says.

But he adds that Pillar has its work cut out for it because its competitors have been in the market so long.

"They're NetApp and I've been using their product for the past five years. I buy comfort from them. Workman and Pillar will have to deliver significantly more value to me on the performance side and on the pricing side."